Wrong housing policies could ‘exacerbate’ stability concerns

A major bank has highlighted that there are a range of “deep and varied drivers” of the housing affordability issue, emphasising the need for a similarly broad policy response.

In ANZ’s latest Blue Lens analysis, chief economist Richard Yetsenga remarked that the forces that have driven Australia’s housing affordability issue for those out of the market are “deep and varied”.

In light of this, it is “not surprising” that significant creative effort has gone into finding cost-effective policies perceived to affect few people, Mr Yetsenga says. However, he pointed out that this approach risks “covering symptoms rather than addressing causes, and potentially escalating imbalances”.

A policy response that “over-focuses” on narrow financial levers and not sufficiently on institutional or broader environment drivers risks “exacerbating rather than reducing stability concerns”, he said.

“The right policies will help rebalance the housing market in a sustainable way, not just over an electoral or economic cycle. And in a way that addresses the emerging division between those in the lane of home ownership, and those who feel they will always be stuck elsewhere.”

He therefore called for a broad policy response to match the complex nature of the issue.

“As well as a greater role for debt levels in monetary policy considerations, we advocate a range of policies. These include stronger permissioning restrictions on non-resident buyers – rather than just tax surcharges which overseas experience suggests are very difficult to calibrate and which gear state government finances even more towards housing.

“[This] includes dwelling availability as a consideration for immigration policy; tax reform to reduce the upfront cost of dwellings (which also inhibits turnover) and redress the imbalance towards investors; and making a concrete effort to improve the efficiency of land usage.”

According to Mr Yetsenga, the drivers of Australia’s housing affordability issue include strong population growth, a collapse in interest rates, and conventional monetary policy narrowly focused on CPI targeting.

He added that the impact of these influences has likely been exacerbated by a range of policy issues unique to Australia, including issues around the quality of city infrastructure; concessional tax treatment for a geared asset; episodic support for public housing and rental conditions that seem to favour the landlord (compared to other countries).